The Viral Milk That Helped Set Off America's Protein Boom

Protein seems to be everywhere these days, with brands from Starbucks to Pepsi jumping on the trend. But the obsession with protein may have started earlier — with a humble dairy product that defied the broader decline in US milk consumption. Fairlife, which uses a specialized filtering process to boost protein and cut sugar and lactose in its milk products, helped spark the modern protein craze that’s unfolded alongside the rise of Ozempic and other GLP-1 drugs. Since Coca-Cola acquired the brand in 2020, Fairlife has become one of the company’s biggest growth drivers. Yet its success also highlights deeper challenges facing the American dairy industry, where per capita milk consumption continues to fall. So how did Fairlife buck the trend? And what does its story reveal about the future of US dairy? On this episode, we speak with Corey Geiger, lead dairy economist at CoBank. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next, about the time it takes to grab a coffee. So, search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:07Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 1:48Speaker 02

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• 2:23Speaker 03

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• 2:38Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 2:42Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:44Tracy Alloway?

  Joe, you're a gym person, aren't you? Notice I did not say gym bro.

• 2:48Joe Weisenthal?

  Yeah, that's right. That's right. Thank you. Aspirationally, I do go to the gym regularly. I don't go to the gym regularly enough to see a difference. I think like I'm at the stage of life where like every day I'm getting a little bit closer to death. And so I'm like holding serve. I'm like sort of holding at the same. So like I know progress, but maybe I'm not regressing. But yes.

• 3:07Tracy Alloway?

  I still think if you go to the gym regularly, you're a gym person.

• 3:11Joe Weisenthal?

  Yeah, okay. Yeah.

• 3:11Tracy Alloway?

  That's, that's impressive.

• 3:13Joe Weisenthal?

  And I'm gonna have less shame about it.

• 3:14Tracy Alloway?

  Okay, here's my question.

• 3:15Joe Weisenthal?

  Yes.

• 3:16Tracy Alloway?

  Have you noticed the drinking habits of some of your fellow gym people? Have you noticed anyone walking around with bottles of milk?

• 3:24Joe Weisenthal?

  I have. I mean, I still see more people with like the energy drinks rather than milk. But yeah, I've definitely seen it. You know, I think like back in the day, you know, you had these guys. I think some of them still do with actual like people who try to drink a gallon of milk in a day.

• 3:39Tracy Alloway?

  Oh, God.

• 3:40Joe Weisenthal?

  There's that famous guy. He has a book called Starting Strength. He's like a cult guru within the barbell world, whose name I'm blanking on. I think he's a big like drink a bunch of milk guy.

• 3:53Tracy Alloway?

  If you're serious about it, you gotta mix raw eggs in with milk. That's what I say.

• 3:58Joe Weisenthal?

  You do? Have you done that?

• 3:59Tracy Alloway?

  No, I haven't. Although I did when I, I triple fractured my foot when I was in Hong Kong and I did have a doctor who advised me to drink a lot of milk to build up the calcium and heal the foot. Anyway, we're getting slightly off topic.

• 4:12Joe Weisenthal?

  Yeah.

• 4:13Tracy Alloway?

  Okay, one of the milk brands that you see a lot in gyms is something called Fairlife.

• 4:17Joe Weisenthal?

  Yeah, I've seen it. And I actually literally like had never thought about what it is or, but yes, I had seen this brand.

• 4:23Tracy Alloway?

  Okay, so I don't know that much about it, but I first got kind of interested in the company, reading Austin Frerick's book, Barrens. There's a whole chapter in there about dairy barrens. And it's about Fair Oaks, which turned into Fairlife. All I know about Fairlife is that Coke bought them. They had a big distribution deal with Coke. And we know how important distribution is in the beverage industry from our previous conversations on Celsius and things like that. And it's turned into this phenomenon where Fairlife is this milk that's, I guess, supposed to be healthier. It has more protein.

• 4:59Joe Weisenthal?

  Yeah.

• 5:00Tracy Alloway?

  It has less lactose or no lactose, I can't remember, which means you can keep it in your fridge for like 100 days.

• 5:06Joe Weisenthal?

  Yeah, that's pretty cool.

• 5:07Tracy Alloway?

  Which is actually, I find that useful. So we should talk about it because it's also kind of kicked off this whole protein craze.

• 5:14Joe Weisenthal?

  Yeah, protein, oh my God, protein everywhere.

• 5:17Tracy Alloway?

  I know, I don't get it.

• 5:18Joe Weisenthal?

  Like, yeah, Starbucks, they have these.

• 5:20Tracy Alloway?

  Yeah.

• 5:20Joe Weisenthal?

  Now you can get this protein drinks. I haven't tried them yet. I, you know, when did it become a crime to just eat normally? I ate some meat and I ate some veggies and occasionally I eat some carbs and stuff like that and whatever. But yeah, over time, it's like different macronutrients trend, right? So there was a while it's like good fats, right? People were really into fats for a while. And then it's like, oh, you need fermented stuff. So, you know, let's eat more of that. It's good for your gut health. But we're in like a, we're certainly in a protein bull market right now. People really want more protein because of reasons.

• 5:55Tracy Alloway?

  Yeah. And what's interesting again about Fairlife is it's making a lot of money.

• 5:59Joe Weisenthal?

  Yeah.

• 5:59Tracy Alloway?

  That's feeding into Coke's bottom line.

• 6:01Joe Weisenthal?

  Yeah.

• 6:02Tracy Alloway?

  Share price has gone up quite a bit. And it's also at odds with basically everything else that's happening in the dairy industry where, you know, prices tend to be pretty low and have been kind of stuck in a downward spiral for a long time. Profit margins are very, very thin. So this is an outlier.

• 6:20Joe Weisenthal?

  People are consuming less traditional dairy, I think a lot, you know, at least, I don't know how big is it is, but some of the quote alternative milks, the almond milks of the world, the cashew milks, soy milks probably taking some. Yeah, plain old regular dairy. No one ever talks about, by the way, number two milk. I feel like everyone's either skim or fat these days because more of the sort of like polarization of society that no one likes a nice middle ground milk anymore. So now apparently they want super high protein milk too.

• 6:49Tracy Alloway?

  All right. So we have the perfect guest.

• 6:51Joe Weisenthal?

  Yes.

• 6:51Tracy Alloway?

  To discuss Fairlife and the dairy industry in general. We're going to be speaking with Corey Geiger. He is the lead dairy economist with Cobank, which is a very big lender to the industry. So really the perfect person to speak to. Corey, thank you so much for coming on Odd Lots.

• 7:06Speaker 05

  Well, I'm glad to be here, Tracy and Joe.

• 7:08Tracy Alloway?

  So I'm going to start with the basic question. What differentiates Fairlife from traditional milk?

• 7:16Speaker 05

  I think there's two big parts to this protein and portability. The portability is it's ultra pasteurized and uses aseptic packaging. So that means it, you can actually ship it without refrigeration. And when you think about the dairy industry, the dairy industry is the largest refrigerated food chain in the world, really. You think as soon as we milk a cow and we cool the milk, it's cooled in the truck to the processing plant. And then traditional dairy products are refrigerated all the way to the grocery store or convenience store. But the Fairlife story and products like it now are when you go to that aseptic packaging

• 7:57Speaker 05

  and ultra filtration, until you open that bottle, it's got a lot longer shelf life. Of course, once it's open, you're at a, the 14 day clock starts ticking.

• 8:07Joe Weisenthal?

  This technology that allows you to store milk for a long time without refrigeration, is this something that's been understood for a long time? And now there's suddenly a demand for this milk? Or is the technology relatively recent? And then the industry is like, oh, we can, because of this technology, we can market and get people excited about a new product that can take advantage of these capabilities?

• 8:33Speaker 05

  Well, Fairlife first came on the scene in 2014, so it's been with us about a decade. But one of the things that the team at Fairlife had to really perfect was this high temperature, short time pasteurization. So you're heating the milk up quick and then cooling it quick. One of the things I like sharing is that milk is nature's most perfect beverage. You talked about it being a health beverage. If it's nature's most perfect beverage, that also means it's a great place to grow bacteria. So pasteurization, you know, over a hundred years ago, the pasteurized milk ordinance came about and that set a national standard so that a Wisconsin farmer could sell milk in the Chicago market or an upstate New York farmer could sell milk into the, in New York

• 9:16Speaker 05

  City under the same rules and standards. But going to this ultra, the HTST, the high temperature, short time pasteurization, originally you kind of got a burnt milk taste. So if you're a consumer and you're tasting it, you're like, eh, it didn't hit the mark. But now they perfected that process and you really get the flavor that you've come to expect from a dairy milk.

• 9:41Tracy Alloway?

  You mentioned having to sell into markets and I'm not quite sure why, but I was reading a book about small-scale farming from the 1950s last night and it was talking about if you're a small-scale farmer and you want to get into dairy, you have some options. One option is you sell into a local market that's very close to you because you know, you can't refrigerate the milk for that long, or you sell to like a cheese factory or something like that and you can go a little bit further, sell maybe more in bulk, that sort of thing. How big a deal was Fairlife's distribution deal with Coke in its success? This idea that now you have a beverage that can be shipped over very, very long distances,

• 10:24Tracy Alloway?

  long timelines, and you have Coke distributing it?

• 10:28Speaker 05

  I think it was huge when you really look at it. If you look at the founders of the concept of what became Fairlife, originally they were experimenting, Mike and Sue McCloskey, with a product that they eventually called Athletes Milk Honey. And so they were looking at finding a health beverage for consumers in that market. So there's one thing to be innovative, then it's distribution. And one of the, for me, I grew up on a sixth-generation Wisconsin dairy farmer, one of the obstacles always for milk has been portability. You know, you have to have this elaborate transportation system to move it, and I'm talking beverage milk here.

• 11:10Joe Weisenthal?

  Yeah.

• 11:11Speaker 05

  And that really overcame the situation with what Fairlife has done with aseptic packaging and the HSUT process, the high pasteurization. It was game-changing.

• 11:23Joe Weisenthal?

  I think this is old news, but it used to be the case that milk prices, what's the deal? They were like set based on your distance from Eau Claire, Wisconsin, or something like that because there was this premise like, oh, we want milk very far away and you sell into your local market and it's distributed. Explain that, that went away or something, but why was Eau Claire, Wisconsin, this sort of central hub for a while of the index for pricing milk? Explain that.

• 11:51Speaker 05

  Yes, there's a number of reasons for it. Actually, we'll start with a little dairy history.

• 11:56Joe Weisenthal?

  Please, please, we love that here.

• 11:57Speaker 05

  Up until about 1910, New York was the largest milk-producing state in the United States. Then that became Wisconsin, and obviously now America's dairy land is on the license plates. Wisconsin, actually, in the 1800s, late 1800s, a gentleman who became governor of the state, William Dempster Hord, secured the first refrigerated railcar to ship Wisconsin cheese to New York City in the 1870s. And today, Wisconsin exports about 90% of their milk production via cheese, and that export could be the other 49 states and certainly now around the world. But because of all the cheese made in Wisconsin and Minnesota,

• 12:39Speaker 05

  Eau Claire was that kind of center point between Wisconsin and Minnesota to establish a base price for milk. That went away here in about 2000, and we have a different system. But milk is still highly regulated under federal milk marketing orders, which is really what establishes milk prices.

• 12:59Joe Weisenthal?

  Could you just real quickly explain what are these, like, what does that mean? Like, it's regulated? Because the prices do fluctuate, so what does that mean that it's still highly regulated?

• 13:07Speaker 05

  Yeah, highly regulated means that federal milk marketing orders, there's four classes of milk. Class one would be beverage milk. That would be the traditional milk that you drink. And when you come back to the Fairlife story, and you discussed that milk, fluid milk sales have been flat, but products like Fairlife and Core Power and those are actually a mixture of fluid milk. And class two products, which traditionally have been scoopable products, like yogurt, ice cream would be in there, sour cream would be in there. And then class three, I liked sharing Little Miss Tufted sat on her muffet eating her curds and whey. So class three is cheese, curds, and whey. And then class four products are butter and

• 13:51Speaker 05

  powder, and butter would be nonfat dry milk. But each of these classes has different pricing mechanisms. And today, beverage milk is priced on the higher of class three or class four.

• 14:07Speaker 05

  It gets complicated and that's why I call dairy very regulated. But these orders came about in 1937. It was an act of Congress. And it was to ensure the orderly marketing of milk and ensure fluid milk in markets that didn't have a lot of dairy cows.

• 14:26Tracy Alloway?

  So, one thing I learned from reading my old farming book is that there are a lot of levers that you can pull if you're, again, this is for small scale farming. But there are levers you can pull to boost profits. So maybe you're not going to make that much from milk itself, but you know, you can sell the calves for veal or once the dairy production starts going down with your cows, you can sell those or you can sell manure for fertilizer and things like that. All these different levers. Can you talk a little bit more about the actual business model of a dairy farm? And where money comes from nowadays? Cause I imagine it's changed quite a bit.

• 15:05Speaker 05

  This is a dynamic space and from an overall, we'll talk about the dairy farm in a second. But dairy right now has $11 billion of new plant investment in the United States. And it's in a number of categories. So there's a lot of energy taking place and a lot of investment. This is historic investment. When you get to the dairy farm, obviously if you're a milking cows, your number one revenue source is milk. I would say up until five years ago, 90% of your income came from milk unless you were selling a lot of crops. But one of the dynamic things that have changed and it's in the news a lot right now is beef prices. And every cow has a second career as a beef animal.

• 15:48Speaker 05

  About five years ago, well, I considered the dairy cow, the most researched animal on planet earth. We know more about her. We have over 123 million records on her over the last hundred years. In 2008, the science of genomics came into the industry. I was actually the first one to write a public article about it. But what you do is you take a DNA sample from the cow. You run her profile and you can compare it to all this phenotypic data, that 123 million records. And with about 70% accuracy. We can predict what that baby calf will do as a cow. And that has changed a lot of things in dairy.

• 16:30Speaker 05

  We are improving butter fat and protein levels at paces we've never seen before. And these days, one out of four heifer calves, baby calves, that will eventually become cows, have a genomic test run on them. And that has really changed things. Then, as that took place, gender sorted semen came into the industry. So we can, they use lasers, they can sort out the Y chromosomes, which make a bull calf. And with about 90 to 95% accuracy, produce a product that makes dairy heifer calves. So dairy farmers are planning their replacements. They're using science to predict the ones. And that opened a whole new door

• 17:15Speaker 05

  to use what we call beef breeds, think Angus, Limousine, Charlet. That we breed those, we'd use artificial insemination, the original AI in agriculture, not artificial intelligence, to inseminate the cows. And dairy farmers are making more money on that these days. So about five years ago, back to Tracy's original question, a dairy farmer was making about $1 per 100 weight, per 100 pounds of milk equivalent from beef sales. And say a dairy farmer's making 18 to 20. So it wasn't $18 to $20 per 100 weight for milk. It wasn't a big deal. But today, that number has gone to 4, 450. So we're generating

• 17:57Speaker 05

  a baby black-headed calf, an Angus calf that's destined for a feedlot eventually, is selling between $1,200 and $1,800 right now. And so it's a big revenue stream. Doesn't matter what size your farm is, everybody can play.

• 18:27Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 18:54Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 19:36Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 20:17Joe Weisenthal?

  So when you're talking about improving sort of butterfat and so forth, what is going, is it selective breeding that just means that you're more likely to get a baby cow that has high levels of whatever you're looking for? Like what is?

• 20:31Tracy Alloway?

  Better production rate.

• 20:32Joe Weisenthal?

  Yeah. What is the source of, I guess, higher yields?

• 20:35Speaker 05

  So I'm past president of Holstein Association USA, which is the largest dairy breed organization in the world. And that source is a bundle of metrics. We study a lot of traits. Certainly the big two would be butterfat. Well, big three would be butterfat, protein and milk. But we are also looking at mastitis resistance or that, you know, the ability to combat an infection in the udder. We're looking for longevity, which is a trait we call productive life, or even daughter pregnancy rate, which is a fertility metric. So that's this bundle of better yields from the cow and reduce costs from the standpoint of healthcare and those

• 21:14Speaker 05

  kinds of things. And right now, if you use the best group of Holstein bulls or even Jersey bulls on the next generation, each year we're improving genetics $100 per year. Prior to genomics, that number was like $13. So this is like significant improvement and using natural science and really doing a better job.

• 21:39Tracy Alloway?

  Sorry, I started laughing at the mastitis reference because.

• 21:43Joe Weisenthal?

  It's hilarious.

• 21:45Tracy Alloway?

  It's hilarious. No, one of the old timey solutions for this in that old book was using a bicycle pump to inflate the cow's udders.

• 21:54Joe Weisenthal?

  Huh.

• 21:55Tracy Alloway?

  So I'm guessing people don't do that so much anymore.

• 21:58Speaker 05

  That is true. We do not do that anymore.

• 22:01Tracy Alloway?

  Okay. What about, you know, you're talking about income that dairy farms can generate. What's going on with the actual input prices? Because it takes a lot of, again, from reading this book, it takes a lot of feed, a lot of hay, a lot of grains to actually get these cows producing milk and also up to size if you're going to sell them for beef.

• 22:23Speaker 05

  So the biggest costs on a dairy farm? Our feed and labor. My wife's family was actually the first to put robots in 25 years ago in the United States to start milking their cows. So some farmers are using robot technology, but that's not exactly mainstream at this point. But look at the near-term prices for feed, soybean and corn grain, certainly in alfalfa are some of the core constituents. Those prices are down. Now, that's a good thing. If you're a livestock producer, not a great thing if you're a row crop farmer. The other thing these days, 37% of the US corn crop actually goes to biofuels, ethanol. So there's byproduct feeds there

• 23:06Speaker 05

  in as well as in the soybean space, we're making biodiesel and one of the byproducts of that is soybean meal. So the cow is a great recycler. In fact, that four stomachs of the cow allow her to eat a lot of byproduct feeds. And I've traveled, I think I've been to 48 states covering the dairy industry. You know, I've seen tomatoes and carrots that didn't make human-grade food in California get fed to cows. I've been in Ohio where reject jelly from Smuckers has been fed to cows. I've been to Canada where a farmer plows out the driveway next door of the plant that makes biscuits for McDonald's and the reject biscuits go into what is a total mixed ration, a TMR. So it's a big food blender, mixes

• 23:50Speaker 05

  up all the food and the cows get a blended diet. So it's kind of a remarkable story.

• 23:56Tracy Alloway?

  Honestly, a cow fed on McDonald's biscuits sounds pretty good.

• 24:00Joe Weisenthal?

  Sounds great. It sounds like a cow is just an amazing machine. All of these discarded food products go in that people that are no other use for because most of us don't have four stomachs. And then every year the cows get better at production or you get better at producing higher producing cows. Sounds like a great business.

• 24:20Speaker 05

  It is remarkable. And that's why even though milk is a product that is very consistent, every farm is different and how every they approach it, you know, there's very, there's similarities to it, but there's a lot of regional differences as well.

• 24:35Tracy Alloway?

  Wait, okay, so cows might be amazing machines, amazing machines.

• 24:40Joe Weisenthal?

  Yeah.

• 24:40Tracy Alloway?

  Machines. Thank you. I had to get at least one pun in there. But the dairy industry we hear has been challenged, right? So consumption has been going down. I think I read somewhere it's down 40% in the US since 1975, something like that. Profit margins are still pretty compressed. Prices seem to be on, basically, it's a race to the bottom. And so you've kind of seen a lot of consolidation of the smaller farms into these big dairy conglomerates. Is that the story there?

• 25:11Speaker 05

  Well, I want to back up first, though. Dairy consumption is actually at the highest level it's been in 40 years. And we measure that, that we have some really good USDA data on that. But if you look at near term, you know, we started out talking about Fairlife, that's Coca-Cola's newest $1 billion brand. If you look at yogurt, year over year, it's up almost 10%. One of the big stories in the yogurt category is certainly Chobani. And I would have half of the sales of yogurt these days are Greek yogurt, which are high protein yogurt. Another category that's been exploding, it's we made Grandma's cottage cheese hip again. And cottage cheese is up.

• 25:53Joe Weisenthal?

  Cottage cheese is great. I always thought it, it always feels like it should have a moment more like Greek yogurt. It's like, oh, this is cottage cheese this year. Is it finally happening?

• 26:02Speaker 05

  It is. And people can't make it fast enough. I was actually talking to a dairy processor at a Wisconsin cheesemakers meeting just last week when it comes to yogurt. And one of his customers said, can you get me more? And he goes, well, not until next year. And he goes, well, just send me whatever you can. It's those products are very tight right now. And then cheese consumption is in an all time high, actually, at 40 pounds per person per year per capita. So those are some big growth areas. What you're probably seeing, Tracy, though, is the story on fluid milk. In the 1970s, the average American drank 30 gallons a year, and now we're probably closer to 19 gallons. One of the things for fluid milk is it's hitched to.

• 26:49Speaker 05

  Dry breakfast cereal complements to one another. In fact, one third of all fluid milk gets consumed on dry breakfast cereal. And that category has not been going well. But then we flip over to these, the core power, which is really a high protein milkshake. And that is not actually tracked in the fluid beverage category. It's considered a different product. We have seen consolidation in the dairy industry. There's fewer dairy farms each year, but the interesting thing is I graduated college in 1995. While dairy farm numbers are down, the number of dairy cows are the same, essentially. About nine, 9.3 million.

• 27:31Speaker 05

  But milk production from those cows is up 45% during that time. It just speaks to the efficiency of the dairy cow and what things are taking place in a dairy farm.

• 27:43Joe Weisenthal?

  If my intuition is correct, that within the liquid milks category, we've sort of every, everything in society has become so polarized and everyone loves extremes. And we see it in politics. We see it everywhere. And this is well known. People, no one likes the middle ground anymore. Within the liquid milk category, has everyone sort of has gone to the extreme ends? They want the high fat milk or the skim, leaving that good old 2% milk, the missing middle?

• 28:11Speaker 05

  That's a very interesting question, Joe. What's taking place in fluid milk? I, three big trends.

• 28:17Joe Weisenthal?

  Okay.

• 28:18Speaker 05

  Protein, so products like Fairlife. Another one is lactose free. A new milk plant going up today will have membrane technology and to do reverse osmosis. And about everybody on the new milks are pulling out lactose. And you've got to remember about one third of Americans are probably lactose intolerant, about 120 million. So let's make a product that they can enjoy. And then in the traditional milk categories, you're absolutely right. Whole milk is about the only one that's growing right now. Skim, which is basically fat free. And the other percentages are down. You know, the dietary guidelines for Americans that USDA and FDA do every five years, haven't really changed their guidance on fat.

• 29:01Speaker 05

  But there's a lot of research out there that said the fats, saturated fats found in dairy and animal proteins like beef and pork and poultry, fish too, seafood are actually good for you. And so there are people already voting with their pocketbooks in this category.

• 29:18Tracy Alloway?

  One thing we learned from previous episodes on, I guess, trendy drinks of the moment is the importance of shelf placement in grocery stores. And I have to admit, when I'm buying milk at a grocery store, I basically just buy what's at eye level. I do buy whole milk, though.

• 29:33Speaker 05

  Yeah.

• 29:34Tracy Alloway?

  That's the preference. But how important is placement for a product like milk, which generally would be considered a staple and perhaps doesn't have as much brand loyalty as some other things?

• 29:48Speaker 05

  Yeah, it, well, there's a reason that in the grocery aisle, if you look at, if you walk through your grocery aisle the next time after listening to this podcast, dairy is often in the back of the store because dairy is in like nine, over 95% of households. So it's a routinely purchased product and that's part of the placement situation. Now, about five years ago, a lot of the pant plant-based beverages were making inroads and those sales are actually down now. People, consumers, in my intuition, are looking for clean labels and they want to see ingredients that they can understand. And I think that's been part of the changing tide in the dairy space as well. And it's interesting when you look

• 30:30Speaker 05

  at it and you think about, we're just past the 10 year anniversary now of Coca-Cola and Select Milk and Fairlife Partnership. Now there's others that are looking into that space. You know, PepsiCo has announced that they're going to have a, their Propel Water brand is going to have a clear protein in it that has 20 grams of protein. And they're also reformulating their Muscle Milk and they're going to have dairy-based protein in that category as well. I think when you go to places like Costco or Walmart, the dairy is just not found in the dairy aisle anymore. It's shelf-stable. It could be in the health food section. It could be in, you know, adult nutrition sections and those

• 31:11Speaker 05

  kinds of things. And so it's expanding beyond its traditional role because of these high protein beverages. And also, if you're looking for calcium, some of these products are, you know, in one serving can get you 50% of that as well.

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• 34:05Joe Weisenthal?

  The way these trends change when it comes to macronutrients, you know, I saw a tweet or something and it was like, oh, fiber is going to be the new protein. That's going to be the big thing everyone wants.

• 34:15Tracy Alloway?

  We should encourage fiber.

• 34:17Joe Weisenthal?

  We should probably encourage fiber.

• 34:19Tracy Alloway?

  I mean, Americans consume a lot of protein already. I don't know why we need more.

• 34:23Joe Weisenthal?

  Apparently we need more, but does the industry like, how long does it take the industry to say, you know what? This is a durable trend. We're actually going to invest in the processing space for this. Cause there's got to be some risk. Consumers are very fickle. Internet health influencers, they may be on to something else by next year. We're like, oh no, you gotta get whatever. You go back to low fat. That's the new hot thing, et cetera. How do producers think about their capital allocation budget? When it comes to playing on new trends within consumption?

• 34:58Speaker 05

  Well, that's a large and big question, Joe.

• 35:01Joe Weisenthal?

  Yeah, I know.

• 35:02Speaker 05

  And you really look at the long-term trends and where things are going. Tracy's absolutely right. If you read some of the research, fiber probably will be the next follow-up to protein. I hear people talking about how do I put a protein drink out there with fiber in it? And bundle the two together. You know, when I was going to grade school, there was a cheese out there called mozzarella in the late, mid 1970s that was only at a couple of pounds per capita consumption. And now it's the most consumed cheese in the U.S. Largely because it's relationship with pizza. So these mega trends can reshape categories. You know, in the 19, well, let's back up even a little further.

• 35:43Speaker 05

  There was a, in the 1960s, there was an organization called the Wisconsin Feeder Pig Cooperative. And how in the heck would that be formed in Wisconsin when Iowa was the largest hog state? But what was happening? We didn't have the technology going back to curds and whey, making cheese and whey. We could make cheese, but the byproduct was whey. And in whey was protein, the most complete amino acid known to humanity, but.

• 36:09Speaker 05

  Cheesemakers would just send the farmers home with it, do something with it. Some would spread it on fields, some would feed it to baby pigs. Well, we learned the baby pigs would grow so fast, so the Wisconsin feeder pig co-op started shipping two to three million feeder pigs to Iowa to be finished with corn and soybeans. Well, now we can use these big dryers, just using drying and harvest that whey. And a lot of cheese plants, not a lot, all the new cheese plants are really going in with a business model, not only to make cheese, but to capture the whey. Whey protein isolates are selling roughly at $10 a pound, which is record high. And so these business models that are taking place and the research to build these $11 billion in new plant investment is really,

• 36:53Speaker 05

  how do we make more out of milk? I think, you know, collagens and colostrum, and now a new one is lactoferrin, which is one of the milk components that really helps reduce inflammation. There's some research out there, you know, depending on the number you see, there may be 5,000, there may be 6,300, somewhere in there, unique molecules in milk. And we are just beginning to research that, learning what parts we can pull apart and help humans. And there's going to be more and more in that space here in the coming years. And that's all part of that investment strategy, what's going to take place in the plant. We're years away from some of that, but.

• 37:35Tracy Alloway?

  So one thing I know about farmers is they're always complaining about something. And no, no judgment there. I'm always complaining about something too. Joe can attest to this. But what are the, what are the current complaints that you're hearing the most from dairy farms?

• 37:48Speaker 05

  Well, right now, near term, 90% of milk in the United States is priced on multiple component pricing. Dairy farmers would say MCP. So 90% of that pricing is butter, fat, and protein. Well, if you look at protein and butterfat as two NASCARs on the racetrack from 2000 to 2014, the protein NASCAR always won. And then as consumers started demanding more fat, and remember, the flavor is in the fat, butterfat won eight of the last 10 years. But right now, we've made so much butterfat that butter prices are down, not only in the US but worldwide. So that's changed the milk checks. So that would be if you went to a dairy meeting right now, to be like,

• 38:32Speaker 05

  that's what sent milk prices down here in the last 60 days. That's one issue that is near and top of mind. The other thing would be labor, of course. It takes a lot of people to run a dairy farm. And the US dairy industry and a lot of farmers, Americans don't like doing dirty jobs when it comes down to it. I, on the weekends, I work on our family farm. But these are still just like building homes. This is very hands-on process here. And that would be another issue that would be top of mind, dairy farmers. And you'll always get a good conversation on the weather. Farmers in general, are we always beholden to Mother Nature?

• 39:15Joe Weisenthal?

  It's interesting you didn't say trade. And but partly like, I get the impression that there's always a million little lawsuits going on between Wisconsin farmers and their friends on the other side of the border about some rules of origin, and they're not buying enough at this. It seems like this is one of those things that transcends every administration. They try to hammer it out, but they're always like sort of arguing over details. You're not fulfilling this. You're supposed to let in this many gallons. You didn't. What are the core persistent issues that American dairy farmers feel is unfair or unideal about, I guess, our dairy trading relationship with Canada?

• 39:56Speaker 05

  Joe, that's a great point, and I should have put it in my list. Trade is top of mind. In 1995, the US was essentially a non-player in the global dairy exports. And that's the year that NAFTA came about. Actually NAFTA came about in 1994. And then 1995, the US Dairy Export Council was formed. And these days, about 17% of the US milk supply, or one out of seven tankers of milk are actually exported as either dairy products or ingredients around the world. So it's very important to dairy. We're actually having a strong export year, but largely because US dairy products and ingredients were lower than the other two major competitors.

• 40:41Speaker 05

  So the EU, the 27 countries, the European Union, are the world's largest dairy exporters. They roughly export 20% of their milk production. Then the small and mighty nation of New Zealand is the number two exporter in the world. They have 5 million cows and 5 million people, roughly in the size of Minnesota and Wisconsin. So one-third of their gross domestic product comes from dairy. If you read an Auckland paper, you would hear dairy at least weekly. And then comes the US. The US's number one export customer is our friends south of the border in Mexico. So the US is about a $9 billion export market on dairy. Mexico is at about 2 billion of that.

• 41:25Speaker 05

  Now, Canada is a discussion to itself. Canada's milk supply is largely governed by a quota system. So dairy farmers up there purchase the right to sell milk. And in fact, on a Canadian dairy farm, the quota is worth more than everything else. It's worth more than the cows, it's worth more than the land, it's worth more than the equipment. To make that work, you can have a lot of imports come in. So there are some things that we send north of the border, butter being one of them. But when you hear the headlines right now, of course, there were other things that were agreed upon in the trade agreement. The last time, the US-Mexico-Canada trade agreement. And one of those largely centers on protein, surprisingly.

• 42:10Tracy Alloway?

  That's interesting. So if you look into your crystal ball for the future. In the next 10 years, looking at the dairy industry, what's going to be most important in terms of the success of a dairy farm or profitability? Is it technology? Is it scale and consolidation? Is it perhaps branding and specialization or efficiencies in the way you're breaking down, you know, milk into all of these various products? Or all of the above?

• 42:39Speaker 05

  I think that's a two-part question because you've got the dairy farmers or dairy producers and then you have the dairy processors. We're going to have to use more and more technology on the dairy farms. I think, coming back to the cow, when dairy farmers invest in genetics, those genetics are additive and they're so important. And if this protein booms, continues, genetics is one of the only ways to improve it. We don't have a lot of feeding practices in the toolbox in that regard. Certainly AI and technology, and I'm going to say artificial intelligence here for the farmers out there listening, will be very crucial into this. And we're going to have to use more technology and find ways to use robotic technology. We're already doing some of that in rotary milking parlors.

• 43:23Speaker 05

  So a rotary parlor would be like a merry-go-round that the cows go on. But when we do milking preparation right now, some robots are putting on teat dip or a sanitizer before we milk that cow, which is important. So those are some areas. The space in a lot of dairy farmers are also crop farmers, especially growing corn silage or alfalfa would be two big staples. And, you know, the whole space on farm equipment would be another area. When it comes to the processing plants, you know, some of these new and modern processing plants have a lot of stainless steel and those costs are going up. But it's that investment in technology, that investment in, you know, all this ultra-filtered milk that we've been talking about too.

• 44:07Speaker 05

  You know, I was just in a plant, there's almost 9,000 filters in there. It's a very, it's a... Very clean and good process, but it takes a lot of investment.

• 44:17Joe Weisenthal?

  It's a materials heavy, it's a materials heavy environment.

• 44:21Speaker 05

  Yes, it is.

• 44:22Tracy Alloway?

  All right, Corey, thank you so much for coming on Odd Lots. We're gonna have to leave it there, but that was so much fun. Love talking about milk with you.

• 44:29Joe Weisenthal?

  Yeah, that was fantastic. I learned a bunch of stuff.

• 44:31Speaker 05

  Thank you, Joe and Tracy.

• 44:32Tracy Alloway?

  Although I will say, after that conversation, I'm not, I'm not craving liquid milk. I'm craving, I'm craving cheese.

• 44:38Joe Weisenthal?

  Yeah, I'm craving cheese right now. And butter, like a nice piece. I want a piece of bread would just like go crazy with the butter.

• 44:46Tracy Alloway?

  Butter and salt.

• 44:47Joe Weisenthal?

  Yeah, butter and salt. I love that. Yeah.

• 44:49Tracy Alloway?

  It's lunchtime.

• 44:50Joe Weisenthal?

  Yeah, I know. We haven't eaten. Yeah, all right.

• 45:04Tracy Alloway?

  I really did learn a lot from that conversation.

• 45:06Joe Weisenthal?

  No, that was really helpful. This is one of those markets, like many ag markets, I think, where there's clearly a heavy market component and clearly a heavy regulatory component as well. And so I think those are some of the hardest for me to wrap my head around. I didn't realize, for example, that in Canada, that you buy the right to sell dairy. And so that just that right to sell into the market becomes a very valuable asset in its own right. I thought that was a great conversation. I'm also fascinated by the fact that maybe it's just day one in terms of learning about all of the useful molecules in milk that can be separated out and have some.

• 45:45Joe Weisenthal?

  He mentioned a few that I had never heard of, but the idea that there's just more science there to be done on learning what is milk or what is in it that could be of value. A lot of interesting stuff there.

• 45:55Tracy Alloway?

  No, the efficiencies and the values you can ring out of a single product, the cow, kind of amazing.

• 46:02Joe Weisenthal?

  Yeah.

• 46:02Tracy Alloway?

  So, again, I'm gonna go back to that book just because it's fresh in my mind, but one of the things it was saying is if you feed the cows a bunch of corn, then they spit out corn kernels in their manure.

• 46:15Joe Weisenthal?

  Oh.

• 46:16Tracy Alloway?

  And you can apparently actually feed pigs on the half eaten corn kernels.

• 46:21Joe Weisenthal?

  That's truly disgusting.

• 46:22Tracy Alloway?

  In the manure. I know, but it's efficient, Joe.

• 46:25Joe Weisenthal?

  It's interesting, I think, what do you call it? Mixed something, something that you could just like, oh, we're gonna have some old biscuits and we're gonna put some tomatoes together. And it doesn't matter, the cow's stomach is gonna be able to digest it. Like, that is a really incredible machine. And it is a good reminder of how extraordinary nature and biology are from efficiency standpoint, that if you wanted to build a machine that could separate, do the equivalent of, you know, four different stomachs, et cetera, it would be such an extraordinarily costly machine. And nature has solved this for us via hundreds of millions of years of evolution. It's just a very fascinating thing to think about, some of these, how efficient these processes have gotten, and then what scientists can do when they learn more about how they work.

• 47:10Tracy Alloway?

  The cows are efficient themselves. I'm still amazed at some of the labor inputs that go into this. So, you know, cows producing milk have to produce calves, so you have to inseminate them. You have to take the calves away from the cows, so that the cows will produce milk that you can sell. And then you have to teach the cows to like, drink from either a bucket or an artificial udder, or whatever. There's a lot you have to do.

• 47:37Joe Weisenthal?

  I'm not sure, I may have mentioned it once or twice. When I was growing up in the Midwest, my grandmother, her husband was a dairy and fruit farmer in the middle of Michigan. And he was very big in the local sort of dairy board, or whatever it was, et cetera. And when I was younger, I thought that was so boring. And now I'm like, it's so mad, I wish you were still around. I wish I have so many, like, if he were around these days, it'd be one of those things where I would like, visit him and I would like, ask him two hours of questions about the dairy. Yeah, have him on Odd Lots, like, one of those people who will answer any of my questions, which he would have, he was a very patient, good guy. And I always feel like, oh, man, I wish I was a little bit older, or whatever, cuz that would have been a very good resource.

• 48:18Tracy Alloway?

  Yeah, I feel the same way. My granddad was a cattle rancher in Texas, and... He died before I got a chance to ask him all these questions. All I remember from his cow industry is that he used to name some of the cows after me and my cousin.

• 48:32Joe Weisenthal?

  Yeah.

• 48:32Tracy Alloway?

  And then he'd slaughter them and he'd tell us like, Tracy number three is no longer with us. So there we go.

• 48:38Joe Weisenthal?

  That's fun.

• 48:38Tracy Alloway?

  All right. Shall we leave it there?

• 48:39Joe Weisenthal?

  Let's leave it there.

• 48:40Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 48:45Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armand, Dashell Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 49:07Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we do these agricultural episodes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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